1|Simple and General Annuities
\SIMPLE AND GENERAL ANNUITIES
An 𝒂𝒏𝒏𝒖𝒊𝒕𝒚 is a series of equal payments at equal
time interval. Examples are monthly rents and
annual insurance premiums.
The time between successive payments is a
𝒑𝒂𝒚𝒎𝒆𝒏𝒕 𝒊𝒏𝒕𝒆𝒓𝒗𝒂𝒍. The time between the first
payment interval and the last payment interval is
called the 𝒕𝒆𝒓𝒎 of the annuity. The amount of
each payment is referred to as the
𝒑𝒆𝒓𝒊𝒐𝒅𝒊𝒄 𝒑𝒂𝒚𝒎𝒆𝒏𝒕, denoted by 𝑹.
Annuities maybe classified according to the
length of payment interval and interest
conversion period. When the payment interval is
the same as the interest conversion period, we
refer to it as 𝒔𝒊𝒎𝒑𝒍𝒆 𝒂𝒏𝒏𝒖𝒊𝒕𝒚. For example, when
the payment interval is monthly, the interest is
compounded monthly as well. On the other
hand, when the payment interval is not the same
with the interest conversion period, we refer to it
as 𝒄𝒐𝒎𝒑𝒍𝒆𝒙 𝒂𝒏𝒏𝒖𝒊𝒕𝒚 or 𝒈𝒆𝒏𝒆𝒓𝒂𝒍 𝒂𝒏𝒏𝒖𝒊𝒕𝒚. For
example, the payment interval is monthly but
the interest is compounded semi-annually.
Another classification of annuities is according to
dates of payment. An 𝒐𝒓𝒅𝒊𝒏𝒂𝒓𝒚 𝒂𝒏𝒏𝒖𝒊𝒕𝒚 occurs
when the periodic payments are made at the
end of each payment interval. 𝑨𝒏𝒏𝒖𝒊𝒕𝒚 𝒅𝒖𝒆
occurs when the periodic payments are made
at the beginning of each payment interval. A
𝒅𝒆𝒇𝒆𝒓𝒓𝒆𝒅 𝒂𝒏𝒏𝒖𝒊𝒕𝒚 is when the periodic
payments are made at end of each payment
interval but it does not begin until after a
designated period of time.
AMOUNT AND PRESENT VALUE OF AN ORDINARY
ANNUITY
The maturity value of an annuity is the final value
at the end of the term of an annuity. It includes
all of the periodic payments and the compound
interest. We us the formula
𝒋 𝒏
(𝟏 + 𝒎) − 𝟏
𝑺𝒏 = 𝑹 [ ]
𝒊 the term for the annuity starts on a future date.
Where 𝑺 is the amount of an ordinary annuity
𝑹 is the periodic payment
𝒏 is the number of payments during the
term of the annuity
𝒋 is the annual interest rate
𝒎 is the number of periods
General Mathematics
Examples:
1. Find the amount of a 10,000-peso ordinary
annuity payable every month at 9%
compounded monthly for 5 years.
2. What is the present value of a 25,000-peso
annuity payable every three months for 3
years at 10% compounded quarterly?
3. A smarthphone is purchased with a down
payment of ₱1000 and the balance at
₱1,075.83 a month for 1 year. What is the cash
price if the interest rate is 6% converted
monthly?
PERIODIC PAYMENT OF AN ORDINARY ANNUITY
When the maturity value or present value of an
ordinary annuity is given, and the unknown is the
periodic payment 𝑹, we use the following
formulas:
𝒊 𝒊
𝑹 = 𝑺𝒏 [ 𝒏 ] 𝒂𝒏𝒅 𝑹 = 𝑨𝒏 [ ]
(𝟏 + 𝒊) − 𝟏 𝟏 − (𝟏 + 𝒊)−𝒏
Where 𝑺 is the amount of an ordinary annuity
𝑹 is the periodic payment
𝒏 is the number of payments during the
term of the annuity
𝒊 is the interest rate per period, computed
𝒋
by 𝒎
Examples:
1. An ordinary annuity payable quarterly at 13%
compounded every quarter for 5 years and 9
months has a present value of ₱275,000. How
much is the quarterly payment?
2. How much should be deposited in an
account every 6 months in order to have
₱3.75 million in 5 years? Money accumulates
at 8% compounded semiannually.
DEFERRED ANNUITY
A 𝒅𝒆𝒇𝒆𝒓𝒓𝒆𝒅 𝒂𝒏𝒏𝒖𝒊𝒕𝒚 is a type of annuity where
The period between now and the start of the
term of an ordinary annuity is called the
𝒑𝒆𝒓𝒊𝒐𝒅 𝒐𝒇 𝒅𝒆𝒇𝒆𝒓𝒎𝒆𝒏𝒕. The present value of a
deferred annuity is the value at the beginning of
the period of deferment and not the beginning of
the ordinary annuity.
2|Simple and General Annuities General Mathematics

To solve this type of annuity, we first solve for the

present value of an ordinary annuity according
to the number of payments 𝒏.
𝟏 − (𝟏 + 𝒊)−𝒏
𝑨𝒏 = 𝑹 [ ]
𝒊
Next, use this 𝑨𝒏 to get the final present value,
𝑨𝒇𝒊𝒏𝒂𝒍 using the formula of the present value of
compound interest. The period of deferment will
be the number of periods 𝒏.

𝑨𝒇𝒊𝒏𝒂𝒍 = 𝑨𝒏 (𝟏 + 𝒊)−𝒏

Where 𝑨𝒏 is the present value of an ordinary

annuity
𝒏 is the number of periods of deferment
𝒊 is the same interest rate per period as
used in solving for 𝑨𝒏

Examples:
1. A small business obtains a loan from a bank.
The loan is to be repaid through monthly
payments of ₱49,973.31, the first of which is
due at the end of 6 months and the last at the
end of 5 years. If the interest rate on the loan
is at 12% compounded monthly, how much is
the amount borrowed?
2. Mr. Yu borrowed ₱1.5 million with interest at
12% compounded quarterly. He will repay this
debt through 10 equal quarterly payments, the
first of which is due at the end of 2 years and
6 months. How much is the quarterly
payment?

GENERAL ANNUITIES
Recall that a general annuity is a type of annuity
in which the interest period is not the same as
the payment period. Hence, one way of solving
a general annuity problem is to replace the
given nominal interest rate by an equivalent
nominal rate making the interest period the
same as the payment period. This will have the
effect of reducing a general annuity problem to
a simple annuity problem. With this, all the
previous formulas can be directly applied.

Examples:
1. Tom decides to save ₱25,000 each month for
the next five years. If he invests all of these
savings in an account which will pay him 8%
compounded semiannually, determine the
total in the account after 5 years.
2. Tim needs to borrow money today. He agrees
to pay back the loan via 30 equal monthly
installments of ₱10,000 each. If interest is
charged at 16% compounded quarterly, and if
Tim’s first payment is due in 6 months, find
the amount he borrowed.